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Topic: Penny Stocks

Truckers and railroads take direction from this Canadian penny stock

This Canadian penny stock’s GPS serves transportation firms across North America.

Two-thirds of its revenue is from recurring contracts and over half of its business is done in the United States. While BMS appears to have some potential as a takeover target, it also faces a number of competitive pressures in a rapidly-spreading area of technology.

Are Penny Stocks Worth It?

Learn everything you need to know in 'Canada's Penny Stock Guide' for FREE from The Successful Investor.

Canadian Penny Stock Guide: Find where to find Penny Stocks that pay well.

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BSM TECHNOLOGIES INC. (symbol GPS on Toronto : www.bsmwireless.com) makes equipment and software that helps owners of truck, train and other fleets monitor their vehicles using global positioning systems (GPS).

Customers typically purchase the hardware upfront and then enter into a long-term contract for software updates and monitoring services. Recurring revenue from those service contracts provide two-thirds of BSM’s total revenue.

The U.S. accounts for 57% of its sales, followed by Canada (42%) and other countries (1%).

BSM’s revenue jumped 327.2%, from $13.8 million in 2012 to $59.0 million in 2016 (fiscal year ends September 30). It rose a further 13.1% in 2017, to $66.7 million.

Those gains were mainly thanks to the company’s purchase of Webtech Wireless for $49.9 million in cash and stock on September 30, 2015. Webtech makes software that compiles and analyzes GPS data. The transaction nearly doubled BSM’s annual revenue.

As a result of the merger, the company’s shareholders wound up with 51% of the company; Webtech investors own the remaining 49%.

Due to various writedowns, BSM’s earnings are more erratic than its revenue. Profit soared from $0.05 a share (or a total of $1.5 million) in 2012 to $0.29 a share (or $9.5 million) in 2013. Earnings then plunged to $0.01 a share (or $330,000) in 2014, and to nil per share (or $20,000) in 2015. Due to the Webtech purchase, earnings jumped to $0.09 a share (or $7.6 million) in 2016.  Much higher income tax expenses led to a loss of $0.05 a share ($5.1 million) in 2017.

Penny Stocks: Research costs almost one quarter of revenue in latest quarter

In October 2016, BSM bought Mobi Corp. As a software provider, Mobi offers products that use GPS data and analytics to let its customers better manage operational activities such as planning, scheduling, routing and dispatch. BSM paid $8.0 million U.S. in cash plus potential future payments based on profits. It subsequently made a payment of $2.0 million U.S. In October 2017, BSM settled with Mobi on a $4.75 million lump sum payment to complete the transaction.

BSM’s revenue in its fiscal 2018 second quarter, ended March 31, 2018, fell 7.5%, to $14.8 million from $16.0 million a year earlier. Recurring revenue remained steady at $11.2 million, but hardware sales dropped. The weaker U.S. dollar also cut the value of sales in that country.

BSM made $2.5 million in the latest quarter, or $0.021 a share, compared to a loss of $1.3 million, or $0.015 a share, a year earlier.

Research costs rose 13.0%, to $3.4 million (or a high 23.0% of revenue) from $3.0 million (19.0%) a year earlier.

The company holds cash of $3.3 million, or $0.04 a share. Its long-term debt is just $1.3 million.

BSM has some speculative appeal. Demand for GPS monitoring services is growing fast as the technology helps more businesses cut their costs. In addition, many of the company’s clients are reluctant to switch providers due to the difficulty of transferring their data to a new platform. That may help BSM to hold on to its current customers while adding new ones. Clients now include six of North America’s class I railroads (such as CN Rail, CP Rail and Norfolk Southern) and dozens of class II and class III railroads.

The company’s growing customer base and small size enhance its potential as a takeover target. However, investors should treat that as a potential bonus, and not the sole reason to invest. After all, GPS-related technology is advancing rapidly and getting cheaper all the time. Today, many low-priced or free cellphone apps include GPS features.

TSI Network recommendation: We don’t recommend BSM Technologies.

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